The group achieved significant double-digit revenue growth across all segments in 2021, driven by a 57% rise in fertilizers, which accounted for 61% of total revenue. Specialty products accounted for a larger share of fertilizer exports in 2021, at 34%. A trend which should continue in 2022 and which generates higher margins. But in addition to volumes, the group benefited from a significant price effect which, combined with operational excellence, propelled the EBITDA margin to more than 43%, against 34% a year earlier.
The 3 times 40 strategy
Karim Lotfi Senhaji, Chief Financial Officer (CFO) of the group, tells us that to understand this record year, we have to go back a few years. “It’s the fruit of a decade of hard work, if not a little more. This is the result of a strategy put in place in 2010-2011, to increase our production capacities on the one hand (note: from 3.5 million to 12 million on fertilizers, for example) and on the other set out to become a global cost leader. In addition, we worked on what we called the 3*40 strategy, namely 40% market share in fertilizers, 40% in acid and 40% in rock”.
The group was able to roll out this strategy correctly and this enabled it to capture all possible growth when market conditions became extremely favorable in 2021 when the market was “at the top of the cycle”. “This strategy has enabled us to capture new markets. We were quickly able to produce more and at a lower cost and we had good selling prices”, sums up Senhaji in fine to explain the outperformance of 2021.
Market Fundamentals
The increase in selling prices in 2021 is primarily the result of a favorable balance between supply and demand. “The market was a bit stretched in 2021. And now there are two factors that can move it one way or the other this year. The first is the crisis in Ukraine and its consequences, in particular whether the Russians stay on the market or not. For the moment, they are because the sanctions do not affect phosphate (note: Russia is one of the world’s largest producers). The second factor is China’s behavior. For the moment, Beijing has suspended exports to direct production towards the local market and this measure is well applied. This restriction is expected to remain in effect until at least June. Opposite, global demand remains strong,” explains Karim Lotfi Senhaji.
Farmers have the ability to buy because grain prices are low. And if demand continues to grow, new global production capacity will be needed. However, they are not scheduled for 2022, which suggests further pressure on prices.
Partnerships to finance growth
The group announced a dividend of more than 8.1 billion dirhams to be distributed to the state this year. A jackpot that represents 50% of the profits made.
Financially, this dividend will not create tensions on the liquidity of the group, which continues to enjoy optimal financing conditions in the opinion of its financial director, who recalls that the group has reduced its net debt by nearly 6 billion dirhams. thanks to the operational cash flow and the international exit under advantageous conditions. Indicators that show that the group has comfortable margins for financing. But for future projects, the group also intends to rely on a formula of “partnerships”, to leverage differently. This is already the case with the JESA joint venture between the Moroccan group and the Australian Worley or, more recently, the partnership with the American Koch in Jorf Lasfar.
With these partnerships, “all future projects will not be financed on OCP’s balance sheet”, concludes our interlocutor. As for a possible opening of capital on the stock market, Karim Lotfi Senhaji will tell us that this eventuality is still being studied….We will probably not know more now (Sic!).
Water program
In response to the drought that the country is going through, the OCP Group is accelerating its “Water” program, and deploying exceptional measures for the year 2022. The group is using new mobile desalination units to increase its capacity and thus to cover all the water needs of the fertilizer production sites in Jorf Lasfar and Safi. Thus, OCP will cease this year to use natural freshwater resources in its fertilizer production sites. In this sense, the released water allocations could be redirected to strengthening the local use of drinking water in the Oum Rabi basin. Beyond the needs of the production sites, the new solutions deployed by the Group will also supply drinking water to the towns of El Jadida and Safi.
A.H